I just stumbled over this clip of Archie Bunker on inflation...

[M.W.]

Certainly is the Fed not raising rates so that they can lower them during a recession.

M2 turned up sharper than ever in the last 2 years but the velocity of M2 turned down sharper than ever too. I can't tell you the exact net effect but they balance each other out to a large degree with it being tipped in the direction of too many monetary units. IMO the primary reason prices are rising is because of lower production.

The fed is raising rates into a recession for one reason only: They need to be able to lower rates when we are in a recession. That's their only tool and rates were near zero. The solution is to raise quickly when you see the recession coming and lower slowly when you are in the recession. It's pointless but that's what they are going to do. It keeps them looking relevant.

You are correct that higher rates cannot help with production. lol. The fed is painted into a corner. Their games just produce volatility and delusion.

Keep in mind that we no longer have market rates for money. The FOMC targets rates. This will allow them to raise interest rates while also raising M2. Many people make the assumption that raising rates reduces the money supply but that has never happened in America.

 

[FreeGoldRush]

Certainly is the Fed not raising rates so that they can lower them during a recession.

So you think they are simply responding to their duel mandate and it's as simple as that? With prices screaming higher that certainly appears to be the case as well.

 

[M.W.]

You make some good points but the reasoning you provide does not seem to make all that much sense. Central banks don't raise rates so they can lower them later. Nor do central banks avoid negative ratea because it would be hard to explain to the public.

Sure they "can" go negative but that comes at great cost to the fed's credibility. It would create all sorts of problems with the general public who won't understand why money is being taken out of their bank account every month. The fed will go to great lengths to avoid that scenario.

 

[newwurldmn]

where was this demand for production coming from during a pandemic if the velocity of money was unchanged?

there wasn't any demand during the pandemic. prices plummetted until the government injected a ton of money. that stabilized prices. then demand picked up as the economy reopened, supply was constricted because everyone cut capacity, and the money was still out there = inflation.

stable moderate inflation is a good thing. "moderate" because it encourages investment now and leaves buffer for deflation (which is really bad).
"stable" because it allows you to do long term planning and forecasting.

 

[M.W.]

Of course they are. It's easy to look back and judge. What rate decisions would you make if you were in their place given you had to target this dual mandate. They Re in a tough spot, partly because of their own past decisions.

So you think they are simply responding to their duel mandate and it's as simple as that? With prices screaming higher that certainly appears to be the case as well.

 

[FreeGoldRush]

Nor do central banks avoid negative ratea because it would be hard to explain to the public.

It would then be cheaper for individuals and corporations to move into gold, silver, crypto, etc. How much money do you think the fed can pull from people's bank accounts each month before people take these actions and the velocity of M2 begins to rise rapidly?

 

[M.W.]

Of course they are. It's easy to look back and judge. What rate decisions would you make if you were in their place given you had to target this dual mandate. They Re in a tough spot, partly because of their own past decisions.

So you think they are simply responding to their duel mandate and it's as simple as that? With prices screaming higher that certainly appears to be the case as well.

 

[M.W.]

I think you are conflating supply/demand for goods and services and the supply/demand for money.

there wasn't any demand during the pandemic. prices plummetted until the government injected a ton of money. that stabilized prices. then demand picked up as the economy reopened, supply was constricted because everyone cut capacity, and the money was still out there = inflation.

stable moderate inflation is a good thing. "moderate" because it encourages investment now and leaves buffer for deflation (which is really bad).
"stable" because it allows you to do long term planning and forecasting.

 

[newwurldmn]

I think you are conflating supply/demand for goods and services and the supply/demand for money.

same issue as money is used to procure Goods and services.

 

[M.W.]

That does not make them the same nor follow the same dynamics and does not require identical policies to manage.

same issue as money is used to procure Goods and services.